Optimal Government Size in Turkey: Insights from Fourier Augmented ARDL
Chapter from the book:
Akça,
H.
&
Yurdadoğ,
V.
(eds.)
2024.
Current Applications in Public Finance.
Synopsis
This study investigates the optimal size of government in Turkey using annual data for the period 1960-2022. At the same time, the Armey/BARS Curve hypothesis, which implies a quadratic relationship between public expenditures and economic growth, is tested. The research employs Fourier-based econometric techniques. While investigating the optimal government size or the validity of the Armey/BARS Curve hypothesis, trade openness, labor, and capital factors, which are the determinants of economic growth, are also considered. According to the findings, the Armey/BARS Curve hypothesis is valid in Turkey. The optimal government size is 20.74% in the basic model, 23.57% in the labor model, 21.80% in the capital model, 21.42% in the trade openness model, and 23.63% in the comprehensive model, where all factors are combined. The average of all models is 22.23%. In terms of government size, considering that the public expenditure (%GDP) data for 2022 is 28.05%, Turkey has a share above the optimal government size estimates put forward by this study.